Canadian Western Bank (CWB.TO)

He likes the financial sector, but believes the US banks are the better place to invest right now. A well-run company, but the stock is up quite a bit in recent months, probably around optimism on oil prices. The stock is not overly cheap. Feels there are better places to invest in, in financials.

(A Top Pick June 3/15. Down 6.69%.) Given what is happening in Alberta and with the Alberta housing market, this is down. They bought a vehicle financing business, and sold off their custodian and their PNC insurance business. He still likes it.

(A Top Pick Nov 24/15. Down 1.28%.) Short. (A pairs trade with a Long on Callidus Capital (CBL-T).)

(Market Call Minute.) Oil and gas.

Canadian Banks were really superstars this last quarter. A lot of that had to do with them being overly pessimistic regarding provisions for credit losses, particularly relating to the energy industry. This bank would be even more so. Trades at a significant discount to the rest of the group. Given the way the dynamics for oil is playing out, the forward curve for crude, you are probably going to be in a good scenario for the next 6-12 months with this bank.

Because it is one of the smaller banks with a lot of exposure to Alberta, the stock sold off. Earnings growth rate has come down quite a bit, so multiples have contracted as well. You could play the larger banks where you don’t have that concentration risk in terms of Alberta. Feels the next couple of quarters could be difficult for them. Had sold his holdings.

(Market Call Minute.) Take your money and run.

The correlation with this bank and energy prices, etc. is what this bank is all about. It is a proxy for Shorting the energy sector. He doesn’t like this one at this time. Expects oil to hit $40 before it hit $60, and therefore potential weakness. Can see a probable 10% downside, at which point he would think about buying if you want a longer-term play on the recovery story of Fort McKenzie.

*SHORT* His concern is driven by what happened with them in the last downturn. It took 8 quarters from the start of the last recession before impaired loans peaked, and 17 quarters to get down to the pre-recession levels. We are only 4 quarters into that, and he sees a tripling of their loan provisions coming forward, and another 3.5 years ahead. Dividend yield of 3.45%.

Just reported in the last day or 2. People were looking for really bad news, and he feels they surprised the street by coming out with much better results than expected. Although provisions for credit losses went up to 78 basis points from 18 last quarter, it wasn’t as bad as people thought it could be. You have to ask yourself if you want to ride out the fact that they are an Alberta-based bank in the current environment, when you can get a better yield at competitive pricing with their larger competitors. He would rather take the yield advantage of some of their peers. (See Top Picks.)

(Market Call Minute.) This is the most sensitive when rates go up. It is one you want to own, but you have to have a bit of patience.

His macro view is that structurally energy could be tough for a longtime. He does not like something that is broken and that you hope is fine. He prefers outside of Western Canada.

(Market Call Minute.) Hold off on this for another couple of quarters until you see if the Alberta Renaissance gets a little better. Would prefer Toronto Dominion (TD-T) right now.

Preferreds, Series B. They had to issue them with quite a high interest rate. Shareholders of previous issues want to sell and buy this one.

The banks are all quite attractively priced. She likes her Top Pick today as well as TD-T for their US exposure. CWB-T is exposed to Western Canada.